Welcome to Professor Pick. Business school teachers will provide weekly curated FT article selections to connect classrooms to current events and develop critical thinking for students.
Read all submissions at www.ft.com/bschoolpicks. Save this link in Maft and receive an email alerting you with each new edition. Search for tags for related topics to describe educational points. Encourage students to participate in the discussion in the comments section below the article.
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Trade, geopolitics
Summary: These three analyses suggest that we are entering a whole new stage in global politics and economics. Luckman details the Trump administration’s trade policy deviations from years of US action and how it changes the global trade regime forever. We are transitioning into a much more fractured international economic environment with great consequences for both private and public stakeholders. Edward Ruth shares his view that Trump is unaware of the scale of change he is unlocking and their impact on both the US and the global economy. The new policy is high inflation, and does not produce the desired outcomes for the US economy, but simply destroys value. In contrast, Oren Cass outlines one of the grand visions behind the new US foreign economic policy. The US is far less dependent on external demand.
Classroom Applications: Understanding the directions of geopolitics and geopolitics is fundamental to corporate leaders looking to build or lead sustainable businesses in the 21st century.
question:
What drivers are behind US policy changes?
Are these changes temporary or structural?
What is the meaning of Trump tariffs and others in business behaviour?
Is there a way to hedge the risks arising from increasing policy and market volatility?
If so, does this new economic environment exist in business?
What kind of business leadership does this geopolitical/geoeconomic landscape have?
Manuel Muniz, Chairman of IE New York University
Economics, Management of Risk and Uncertainty
ECB will be cut to 2.25% amid the Trump Trade War
Tags: Central bank, interest rate, inflation, tariffs
Summary: The European Central Bank (ECB) has reduced benchmark interest rates by 0.25% to a minimum of 2.25% in more than two years in response to economic uncertainty due to US trade tariffs. ECB President Christine Lagarde cited growth outlook and the deteriorating market. A decision considered to be dovish is a signal that could be further reduced. Analysts warned of the risk of inflation due to supply chain fragmentation and increased government spending, but the current trend inflation remains downward.
Classroom Application: This article provides a platform for faculty and students to discuss the role of central banks on inflation, including targets, tools and tactics, all on the backdrop of geopolitical and macroeconomic uncertainty.
question:
What is the ECB’s inflation target? And how does it compare to other central bank goals?
What is the central bank’s intention in reducing benchmark interest rates?
Under what circumstances can central bank benchmark interest rates fall below zero?
Why are each of the three external factors cited in the article effective in promoting inflation in the eurozone? Lower energy prices. Stronger euro; increasing imports from China?
What direct impacts will the increase in tariffs and trade barriers have?
Tom Davis, Clinical Assistant Professor, Joseph M. Katz Graduate School of Business, University of Pittsburgh
Mergers and acquisitions
Article: Meta had “exclusive rights” after purchasing the rival app, FTC says
Tags: monopoly, killer acquisitions, antitrust laws, strategies, mergers and acquisitions
Summary: The US Federal Trade Commission (FTC) accused the 2012 purchase of Instagram of gaining “exclusive power” in 2014 for $1 billion and $19 billion on WhatsApp, as discussed in the Washington District Court trial. The FTC claims that these acquisitions have reduced competition, claiming that the 85% market share spent on Meta’s app and Mark Zuckerberg’s internal communications show a “buy or boring” strategy. Meta has denied the monopoly, claiming that its market share is low when it includes competitors such as Tiktok and YouTube, and that the quality of Instagram and WhatsApp has improved. This exam could lead to Meta having to unlock these acquisitions.
Classroom Application: This article offers the opportunity to discuss “killers” or preemptive acquisitions made by companies, primarily to prevent future competition by the startups themselves or the rival companies that acquire them. Antitrust regulations are not effective at acquisitions as this usually occurs early on. In these cases, classical evaluations do not play a role. Even the typical negative stock price reactions of acquirers regarding the announcement of a transaction can be interpreted in a different way. Without buying, the acquirer could lose more in the long run. Furthermore, this article exemplifies the difficulties of defining a “market” (here, social media). This is a classic antitrust argument.
question:
What happened to Meta/Facebook when I purchased Instagram and WhatsApp? In light of these arguments, how do you determine the acquisition of WhatsApp?
What would you tell Facebook investors who are worried about a decline in stock prices after the deal is made public?
Is there a way for antitrust authorities to intervene in these preemptive early stage acquisitions?
Do European antitrust authorities need the power to unleash acquisitions like the US?
Michael Groat, Frankfurt School of Finance Management
Global commerce, international entrepreneurship, international strategy
Gulf Petrostart Kuwait tries to start diversifying from oil
Tags: Kuwait, oil, political and economic diversification, sustainability
Summary: Kuwait is poised to borrow for the first time in eight years since passing the long-term public debt law, showing potential changes to economic diversification in a country that relies heavily on oil revenues to fund a large welfare state. The political stalemate has lagged behind local neighbours such as Saudi Arabia and the United Arab Emirates, where Kuwait implemented an ambitious reform agenda. To overcome this, Emil Sheikh Mishal suspended the parliament to enact reform. To fund critical infrastructure projects and reduce Kuwait’s reliance on oil, the new law allows borrowings of up to $97 billion, as it continues to be a mainstay in its economic strategy despite increasing financial tensions. Critics stress that despite growing optimism and reflecting on the robust stock market, governments need to provide a clear, strategic vision for sustainable development beyond hydrocarbons.
Classroom Application: This article provides an opportunity to discuss how and why teachers are in some of their Arab neighbours, a country that is slightly larger than New Hampshire (with GDP of nearly $300 million) that are more aggressive in economic and political reform. It is also surprising that countries with such large GDP must borrow money and embrace sustainability.
question:
After eight years of restraint, what are the advantages and disadvantages of Kuwait of borrowing from the global debt market?
What could Kuwait’s efforts to achieve economic reforms lead to an increase in the country’s debt-to-GDP ratio?
What potential impact will Kuwait’s economic transformation plan have on its ability to compete in the Gulf Cooperation Council (GCC)?
What obstacles should Kuwait overcome to create and implement Cogent’s national economic strategy?
The question of why Kuwait is revoking citizenship from many of its residents lies outside the scope of this paper (a country of 1.5 million), but check out the FT coverage here.
Case Discussion Positioning: This is a great opportunity to focus on the changes of one of the smallest Gulf countries. This is happening in real time. On the one hand, what Kuwait is doing is important, but on the other hand, maybe this is a key indicator of other Arab countries? There are many changes happening in the region, including Syria, the renewable energy market outside of China, and political jockeys.
Gregory Stoller, Master Lecturer, Boston University Questrom Business School
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